How do I determine the amount of equity that I should provide to an investor in my company?

I have a consulting company which is just incorporated, but yet to commence operations. However, someone has offered to invest $5,000 in my company in exchange for equity. How much equity is that worth?

Investing, Small Business Financing
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Congratulations on starting your company!

I think you need to clarify some important questions:  Why is this person offering to invest in your company?  Are they looking for "passive" investment or more active ownership in the company?  Why did he or she choose your start-up in particular?  

Valuations are standard protocol for established companies looking to restructure ownership.  But start-ups with no track record have no easy way of determining the equity percentage.  You may want to consider delaying any equity ownership discussions until your company is more established. In the meantime, personal capital and business debt may be easier ways to grow your company.  Here's a link to my recent blog post called "Financing Your Way to Business Growth."  I hope it is helpful.

Deb Meyer

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